Resumo de Contagious Speculation And A Cure For Cancer: A Nonevent That Made Stock Prices Soar(4)

III. What Happened to Firms in the Biotech Index?The news of May 3 (if it can be called news) was idiosyncratic??a burst of optimism about potentially cancer-curing proteins to which ENMD holds property rights. Moreover, it seems that investors qualified to analyze the relation between Dr. Folkman's work and prices of stocks other than ENMD must have been very sophisticated and well informed in cancer research and its commercial implications. These are exactly the people to whom the May 3 Times piece was not news. By May 3 they must have heard of, and probably read, the Nature pieces of the previous November and various reactions to them. Thus, one could hardly expect unusual price movements o?or unusual trading in, other biotechnology stocks. Nonetheless, the optimism was contagious.We study the stock-price behavior of members of the NASDAQ?s Combined Biotechnology Index, which consists of NASDAQ-listed firms engaged in bio-medical research to develop new treatments and cures for diseases. To enter the index, a firm must have a minimal market capitalization of $50 million.(ENMD is in the index, but excluded from the sample.) We pay special attend on to those 7 members of the index with May 4 returns exceeding 25 percent Then we focus on Bristol-Myers Squibb (BMY), a major pharmaceutical firm with a market capitalization of over $100 billion in early May 1998. Both the November 27, 1997, and the May 3, 1998, Tames articles mention it as working with ENMD to develop Angiostatin, one of the proteins at the core of the scientific breakthrough. According to ENMD's press release of November 28, 1997, it and BMY had forged a strategic partnership in December 1995.An equally weighted portfolio of the 134 stocks of the NASDAQ Combined Biotechnology Index returned 7.5 percent on May 4, and the median stock price in that group rose 1.6 percent. (This 7.5 percent is unusual: The absolute values of 506 of the 507 daily returns of this portfolio in the period from 1996 to 1997 were less than 6 percent.) Figure 2 depicts the Return of the equally weighted index around May 4 as well as the average trading volume in its member stocks and the fraction of stocks with returns exceeding 5%. The value-weighted return on the index was 1.43 percent, more than 1 percent higher than the 0.29 percent NASDAQ?s return on May 4.Next, we consider the seven biotech stocks whose May 4 returns exceeded 25 percent. A search in the ABI Inform database turns up no mention of these firms from May 1 through 4. Returns of three of these exceeded 100 percent, returns of two were between 50 percent and 100 percent, and returns of another two firms were between 25 percent and 50 percent. A comparison of these returns with the extreme return distribution reported in Table I shows how unusual the returns of these seven biotechnology stocks were, and, especially, how unprecedented their clustering was. For instance, Table I shows that among all the members of the Biotechnology Index, only one stock price more than doubled in a day in 1996 and 1997, and only twice did four firms return more than 25 percent on the same day. (These eight returns were between 25 percent and 46 percent.)

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